Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

Indo Tambangraya Megah / Equity Bottom-Up

<ul>
<li>We expect a 10,000-12,000 Rph dividend for FY22 (div yield 28%-33%) from <a href="https://www.smartkarma.com/entities/indo-tambangraya-megah-tbk-p" target="_blank" data-smartkarma-citation="entities:15891:1" rel="noopener">Indo Tambangraya Megah (ITMG IJ)</a> as earnings are set to improve &gt;70% HoH (H1 dividend - 4128 Rph/share).</li>
<li>With coal prices remaining elevated, if volumes remain flat YoY, we could see &gt;50% of the stock price returned in dividends throughout FY22e/23e.</li>
<li>There is an excellent margin of safety, with almost 40% of the market capitalization in net cash. With a &gt;65% payout ratio, we will see cash levels build further. </li>
</ul>


We expect a 10,000-12,000 Rph dividend for FY22 (div yield 28%-33%) from Indo Tambangraya Megah (ITMG IJ) as earnings are set to improve &gt;70% HoH (H1 dividend - 4128 Rph/share).
With coal prices remaining elevated, if volumes remain flat YoY, we could see &gt;50% of the stock price returned in dividends throughout FY22e/23e.
There is an excellent margin of safety, with almost 40% of the market capitalization in net cash. With a &gt;65% payout ratio, we will see cash levels build further. 


ITMG - Div Yield >28%, Net Cash 40% of Mkt Cap, Deep Value with High Coal Price

<ul>
<li>
<a href="https://www.smartkarma.com/entities/indo-tambangraya-megah-tbk-p" target="_blank" data-smartkarma-citation="entities:15891:1" rel="noopener">Indo Tambangraya Megah (ITMG IJ)</a> reported strong Q2 2022, with profits of 247 mn USD up 225% YoY, and coal prices averaging 202 USD/ton for the quarter (inline). </li>
<li>The only disappointment was volumes which came in at 3.9 mn tons, down 20.5% YoY. The company guided sequential improvement in coal production for Q3 2022 to 4.6 mn tons. </li>
<li>
<a href="https://www.smartkarma.com/entities/indo-tambangraya-megah-tbk-p" target="_blank" data-smartkarma-citation="entities:15891:1" rel="noopener">Indo Tambangraya Megah (ITMG IJ)</a> is 2.6x PE FY22e, with 28% of its market capitalization in cash and a dividend yield of 28% based on a 70% payout ratio.</li>
</ul>



Indo Tambangraya Megah (ITMG IJ) reported strong Q2 2022, with profits of 247 mn USD up 225% YoY, and coal prices averaging 202 USD/ton for the quarter (inline). 
The only disappointment was volumes which came in at 3.9 mn tons, down 20.5% YoY. The company guided sequential improvement in coal production for Q3 2022 to 4.6 mn tons. 

Indo Tambangraya Megah (ITMG IJ) is 2.6x PE FY22e, with 28% of its market capitalization in cash and a dividend yield of 28% based on a 70% payout ratio.


ITMG - Insights from the Q2 2022 Presentation

<ul>
<li>
<a href="https://www.smartkarma.com/entities/indo-tambangraya-megah-tbk-p" target="_blank" data-smartkarma-citation="entities:15891:1" rel="noopener">Indo Tambangraya Megah (ITMG IJ)</a> is a 2.3 bn USD company with ~880 mn USD net cash adding &gt;100 mn USD of free cash flow a month.</li>
<li>At a 103 USD/ton ASP the company made a 475 mn USD profit for 2021. We estimate prices are easily around 200 USD/ton for the company in the current environment.</li>
<li>
<a href="https://www.smartkarma.com/entities/indo-tambangraya-megah-tbk-p" target="_blank" data-smartkarma-citation="entities:15891:1" rel="noopener">Indo Tambangraya Megah (ITMG IJ)</a> has a track record of paying &gt;70% of its profits as dividends since 2009 ( implying a yield of 37% for FY22 ). </li>
</ul>



Indo Tambangraya Megah (ITMG IJ) is a 2.3 bn USD company with ~880 mn USD net cash adding &gt;100 mn USD of free cash flow a month.
At a 103 USD/ton ASP the company made a 475 mn USD profit for 2021. We estimate prices are easily around 200 USD/ton for the company in the current environment.

Indo Tambangraya Megah (ITMG IJ) has a track record of paying &gt;70% of its profits as dividends since 2009 ( implying a yield of 37% for FY22 ). 


<ul>
<li>Newcastle coal prices have normalized from the highs of USD 450/ton (in September 2022) to current levels of USD 145/ton (a 68% correction from the peak). </li>
<li>From profits of 100 mn USD/month, we are now down to 90-100 mn USD/quarter. Despite this, the stock trades at 4.5x PE with a 15% dividend yield. </li>
<li>An added buffer of 850 mn USD of net cash represents 50% of the market capitalization. </li>
</ul>


Newcastle coal prices have normalized from the highs of USD 450/ton (in September 2022) to current levels of USD 145/ton (a 68% correction from the peak). 
From profits of 100 mn USD/month, we are now down to 90-100 mn USD/quarter. Despite this, the stock trades at 4.5x PE with a 15% dividend yield. 
An added buffer of 850 mn USD of net cash represents 50% of the market capitalization. 


ITMG IJ: A Healthy 15% Yield Despite the Coal Price Correction, With >50% Mkt Cap In Cash

<ul>
<li>The pivot in capital allocation plans of <a href="https://www.smartkarma.com/entities/whitehaven-coal-ltd" target="_blank" data-smartkarma-citation="entities:14253:1" rel="noopener">Whitehaven Coal (WHC AU)</a> by suspending its buyback program (up to 25% of outstanding shares) is a big negative for us. </li>
<li>We think the increase in capex spending in a frothy pricing environment and focus on M&amp;A for spending the 2.6 bn of cash is a coin toss on capital allocation. </li>
<li>We prefer names that keep their capital allocation plans consistent, e.g., <a href="https://www.smartkarma.com/entities/indo-tambangraya-megah-tbk-p" target="_blank" data-smartkarma-citation="entities:15891:1" rel="noopener">Indo Tambangraya Megah (ITMG IJ)</a>, and would take money off the table here.</li>
</ul>


The pivot in capital allocation plans of Whitehaven Coal (WHC AU) by suspending its buyback program (up to 25% of outstanding shares) is a big negative for us. 
We think the increase in capex spending in a frothy pricing environment and focus on M&amp;A for spending the 2.6 bn of cash is a coin toss on capital allocation. 
We prefer names that keep their capital allocation plans consistent, e.g., Indo Tambangraya Megah (ITMG IJ), and would take money off the table here.


Whitehaven Coal Suspension of Buyback: A Negative Despite Rising Coal Price/ Potential Acquisition

Indonesia

Tambang Batubara Bukit Asam Tbk PT provides coal mining activities. The Company offers services including general surveying, exploration, exploitation, production, transportation, and marketing of coal.

PT Bumi Resources Tbk operates in the exploration and exploitation of coal deposits, including coal mining, and oil exploration activities. The Company offers its services to cement companies and power plants, as well as middle and large scale industrial companies that involve in chemical, mine, and textile businesses. Bumi Resources also has interest in mining gold, silver and copper.

PT Medco Energi Internasional Tbk is an integrated energy company. The Company explores for and produces oil and gas both in Indonesia and internationally, operates gas-fired power plants in Panaran I, Batam Island, and develops renewable fuels such as Bio-fuel.

PT Surya Esa Perkasa Tbk produces liquefied petroleum gas.

PT ABM Investama Tbk invests in energy resources, energy services and energy infrastructure.  Through subsidiaries, the Company mines coal; offers mining services; offers logistics and warehousing services; generates electricity; and manufactures equipment for the mining, oil and natural gas, electricity generation, and transportation industries.

PT Baramulti Suksessarana Tbk is a coal mining company in Kalimatan.

PT Golden Energy Mines Tbk, (GEMS) operates as a holding company. Through its  s ubsidiaries, the Company mines for coal. GEMS' supplies paper mills and export energy markets including China, India, Thailand, Vietnam, and Bangladesh.

PT Indika Energy Tbk is an energy company. The Company provides energy services, energy resources and infrastructure, primarily in the areas of coal production, engineering, procurement and construction services and power generation services.

PT Energi Mega Persada Tbk explores, develops and produces crude oil and natural gas.

Teekay Tankers Ltd. provides oil transportation services through a fleet of mid-size tankers, including Suezmax and Aframax crude oil tankers and Long Range 2 product tankers. The Company's vessels are typically employed through a mix of short- or medium-term fixed-rate time charter contracts and spot tanker market trading.

DHT Holdings, Inc. is an independent crude oil tanker company.  The company provides transportation services to oil companies and trades internationally with a fleet of crude oil tankers in the VLCC, Aframax and Suezmax segments.

Oriental Energy Co., Ltd. manufactures, processes and distributes liquefied petroleum gas (LPG).  The Company produces LPG using oilfield associated gases, mainly including propane and butane. Zhangjiagang's products are mainly used as industrial gas, as well as chemical raw materials.

Shanxi Lanhua Sci-Tech Venture Co., Ltd. produces and markets coal and fertilizers.

Anhui Hengyuan Coal Industry and Electricity Power Co., Ltd. operates in coal mining and processing.

Sitio Royalties Corp. focuses on investing in mineral and royalty interests in oil basins. The Company acquires, owns, and manages mineral and royalty interests across a diverse set of operators in unconventional basins within the United States with a specific focus on the Permian Basin.

Beijing Haohua Energy Resource Co., Ltd. produces and sells coal.  The Company's products are used in metallurgy, power generation, chemical and construction material industries.

Beijing Haohua Energy Resource (601101 CH)

World Fuel Services Corporation markets aviation and marine fuel services.  The Company provides aviation fuel and flight plans, weather reports, and other aviation related services to passenger, cargo, and charter airlines, as well as markets marine fuel and fuel management services to shipping companies and the US military.

Chennai Petroleum Corporation Limited refines crude oil and markets petroleum and petrochemical products, including lube oil base stocks, aviation turbine fuel,  propane, propylene and polybutene feedstock.  The Group operates two refineries, the Cauvery Basin Refinery and the Manali Refinery.

SFL Corporation Ltd. owns and charters out ships. The Company operates fleet includes crude oil tankers, bulk and ore vessels, dry bulk carriers, container ships, and jack up oil rigs. SFL serves customers worldwide.

PT Indo Tambangraya Megah Tbk operates as a coal exploration and mining company that provides energy and electricity support. The Company operates in Indonesia and supplies coal to the world energy market.

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Indo Tambangraya Megah (ITMG IJ)

ITMG - Div Yield >28%, Net Cash 40% of Mkt Cap, Deep Value with High Coal Price

We expect a 10,000-12,000 Rph dividend for FY22 (div yield 28%-33%) from Indo Tambangraya Megah (ITMG IJ) as earnings are set to improve >70% HoH...

Sameer Taneja

ITMG - Insights from the Q2 2022 Presentation

Indo Tambangraya Megah (ITMG IJ) is an Indonesian coal producer with a 2.6x PE FY22e, with 28% of its market capitalization in cash and a dividend...

Sameer Taneja

A Layman's Thesis for ITMG

Trading at 1.9x PE FY22e with a 37% implied dividend yield on a payout ratio of 70% with 28% of its market cap in cash post outstanding dividend...

Sameer Taneja

ITMG IJ: A Healthy 15% Yield Despite the Coal Price Correction, With >50% Mkt Cap In Cash

Despite the recent coal price correction, ITMG trades at 4.5x PE &15% dividend yield. The cash buffer of 850 mn USD (50% of the market cap) also...

Sameer Taneja

Whitehaven Coal Suspension of Buyback: A Negative Despite Rising Coal Price/ Potential Acquisition

We provide a rationale for why we do not like Whitehaven Coal's suspension of its buy back program despite the strong coal price environment and...

Sameer Taneja

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